BofA Hartnett: The current U.S. stock rebound is turning into a "bull trap"

The Nasdaq index has set a record for the longest consecutive gains in over 15 years, technology stock ETFs have hit new weekly highs, but according to Bank of America Chief Investment Strategist Michael Hartnett, this rapid rebound that has excited investors may be evolving into a costly "bull trap."

Recently, the Nasdaq has risen for 13 consecutive trading days, marking the longest streak since July 2009; the technology stock ETF XLK closed at a new weekly high above $153. However, the financial stock ETF XLF failed to hold the 200-day moving average, and its divergence from tech is a potential warning sign. In Hartnett's view, this rebound, driven by record cash outflows, is shifting from "oversold correction" to a dangerous territory that could trap bulls.

In terms of fund flows, last week saw a record weekly outflow of over $172.2 billion in cash, with $11.3 billion pouring into the stock market, $7.9 billion into bonds, and about $1.2 billion each flowing into gold and cryptocurrencies.

Meanwhile, BofA's April Global Fund Manager Survey showed the highest level of institutional pessimism since June 2025; but the actual fund flows are exactly the opposite—global equity inflows in 2026 are expected to exceed $1 trillion, possibly setting a historical record.

To address this contradiction, Hartnett gave a sharp judgment: "Watch what they do, not what they say." Bears worry inflation has not peaked and the bond market faces a new round of sell-off risks; bulls are betting that earnings will support the index's new highs. But Hartnett's overall conclusion is clear: the current market has entered a "bull trap" zone.

Technical Cracks: The Speed of the Rebound Itself Is a Warning

This rebound has been unusually fast. According to BofA data, the market switched from oversold to overbought in just 11 trading days, the second fastest record since 1982.

This switching speed has been driven by liquidity expansion and re-leveraging, but raises questions about the sustainability of the trend. Previously, BofA's "sell" signal was triggered at the end of March, and Hartnett accurately predicted the starting point of this rebound near the market low.

On technical indicators, the 13-day Nasdaq rally matches the record since July 2009; XLK hit new weekly highs with significant gains.

In contrast, XLF fell below the 200-day moving average. The weakness of the financial sector suggests this rally lacks sufficient market breadth. Meanwhile, AUD/JPY rose to its highest level since October 1990. Hartnett sees this as a reflection of extremely high risk appetite and lists this "cyclical currency vs. safe-haven currency" strength as one of the indicators of an overheated market.

Record Cash Outflows: Momentum Chasing Increases Market Vulnerability

Last week's fund flows showed a typical momentum-chasing pattern. A weekly cash outflow of $172.2 billion set a historical record, with funds quickly diverted into various risk assets: $11.3 billion into stocks, $7.9 billion into bonds, and about $1.2 billion each into gold and cryptocurrencies.

On a full-year scale, global equity inflows in 2026 are expected to surpass $1 trillion, and investment-grade bond inflows are also expected to hit new records.

From hedge funds to CTA strategies, the current restocking and momentum-chasing pattern is highly similar to the previous rapid correction. Hartnett points out that this momentum chasing, driven by forced entry, historically often appears when trends are most stretched.

Survey vs. Actions: Fund Managers "Say One Thing, Do Another"

BofA's April Global Fund Manager Survey shows institutional investors' overall pessimism is at its highest since June 2025, but this sentiment reading is completely at odds with actual inflow data.

Hartnett unusually criticized his own survey, bluntly stating that it "is full of contrarian noise and has no signal value," adding that fund managers "are only good at one thing: lying," and advising investors to "watch what they do, not what they say."

This statement is meaningful—especially since Hartnett himself hosts this survey. The sustained divergence between positions and sentiment is both the structural driver behind the current rally and may become a trigger for concentrated selling if market sentiment reverses.

Bull-Bear Game: Key Opposition in Inflation Path and Earnings Valuation

The current market debates focus on two core variables: inflation trajectory and valuation support.

Bears believe it is premature to buy risk assets before inflation peaks. Their core concern is: rising oil prices, higher CPI, and climbing interest rates in Q2 could trigger bond market "sell-off storms" similar to 2013, 2015, 2022, and 2023.

Specific risk factors include unexpected acceleration in the labor market, a weaker dollar amid geopolitical tensions, and dovish expectations for the new Fed Chair Warsh—historical data shows that, for the past seven Fed Chairs, US Treasury yields averaged a 50-basis-point rise in their first three months.

Bulls argue, as long as US Treasury yields and unemployment stay within the 4%–5% range, the market need not worry excessively. S&P 500 earnings per share may break above $330, enough to support historical highs for the index.

Bulls also cite macro policy logic: policymakers, aiming to please voters, favor strong nominal GDP growth; and participants generally share a consensus that the "stock market is too big to fail," which provides extra psychological support.

Hartnett Strategy Outlook: Rate-Cut Expectations Will Narrow Further, Buy China

In his investment outlook, Hartnett expects Fed rate-cut expectations will compress further. Currently, market expectations have narrowed dramatically—from a maximum 125bp cut projected last October, and a maximum 20bp hike projected last March, down to just 5bp cut expectation now; Hartnett believes this number still has room to decline.

Hartnett also recommends: "Buy China." China's tech exports rose 43% year-over-year, reaching $234 billion; RMB/JPY hit its highest level since August 1992, and RMB/KRW its strongest since February 2009; China's reserves in alternative energy and Russian oil are seen as key conditions supporting its AI development.

Moreover, Hartnett mentioned the US SEC is considering removing the $25,000 minimum capital requirement for individual day-trading, interpreting it as a regulatory signal aiming to create a "final wave" of retail-driven market rally. He concluded with an ironic remark: "Unless it’s totally unannounced."—meaning, the large-scale entry of retail funds may be the final leg of this cycle.

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